Ex-Owner of Jreck Subs Pleads Guilty of Bilking Investors of $9.5M, Tax Evasion

[nitpicker]

http://www.bluemaumau.org/15470/exowner_jreck_subs_pleads_guilty_bilking_investors_95m

Ex-Owner of Jreck Subs Pleads Guilty of Bilking Investors of $9.5M, Tax Evasion

Posted Thu, 2016-09-22 17:10 by Janet Sparks

WATERTOWN, New York – The former owner of Jreck Subs, a 40-restaurant franchise chain founded in 1967, pled guilty Monday to defrauding investors and lenders of at least $9.5 million and to evading paying taxes to the United States government, through a promissory note scheme that was in operation from 2005 to 2015.
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Swartz's criminal activity was instigated by Swartz through using his multiple interests in various food and restaurant businesses, raising money by fraudulently inducing lenders with the promise of repayment at high interest rates and ownership interests in his companies. He misappropriated and diverted funds received and when lenders and investors sought the return of their funds, Swartz attempted to lull them with false and fraudulent excuses, assurances, and partial payments, including payments by checks that he knew would bounce. The U.S. Attorney Office said Swartz also concealed his assets and income to avoid seizure and collection by lenders, investors, and judgment creditors, thereby attempting to prevent recovery of their funds.

As part of his scheme, Swartz in 2009 used a promissory note and the offer of an equity interest in the Jreck Subs franchise to induce an investor group from New York City to provide $1.5 million in funds, including funds for the construction of new stores and growth of the restaurant chain. "Swartz misappropriated and diverted a substantial portion of the funds. Swartz then solicited additional loans from this same group, fraudulently inducing them with a series of additional promissory notes, which he failed to honor while misappropriating funds. Swartz purported to secure some of the notes with fictitious and forged rebate agreements," the U.S. Attorney's Office stated.

Swartz admitted that during the 10-year period, he also engaged in a tax evasion scheme, filing false tax returns that understated his personal income. "Swartz diverted money from business accounts and disguised these diversions in the company records as, among other things, loans and business expenses. He made extensive use of cash to diminish the traceability of funds and concealed his ownership of various assets using multiple entities and nominees. Swartz also falsified partnership tax returns and attempted to impede the IRS's ability to collect employment taxes," the government offices stated in their announcement.
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